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May 6, 2014 Newsletter Archive

Estate Planning and Second Families

We are living a lot longer today than our great, great grandparents did. We are living a lot better too. Advances in medicine and hygiene have increased improving our quality of life. Yet, aging still has its obvious challenges. One of these is the fact that sometimes spouses predecease one another by a large number of years. Today, the surviving spouse may be energetic and embrace widowed life with new gusto, taking classes, learning new skills, continuing to work or volunteer, and even remarrying later in life.

Although children generally wish the best for their parents, a new spouse, particularly after a fairly strong marriage of several decades, can shake up the family's harmony. First, there are the memories of the deceased parent that children grapple with. Additionally, even the most stable adult children may perceive a new spouse as a threat to their surviving parent's financial and physical well-being. There may be an upheaval from the parents' marital home, and there may be stepchildren in the picture, who suddenly seem far too influential over the surviving parent. In fact, though children may be well into their own adulthood, with college-aged children themselves, children may perceive a parent's second marriage in a similar way as many adolescents do, with anxiety, resentment and even hostility.

Sometimes these emotions are unfounded - but not always. While most people enter into second marriages for the right reasons, sometimes widows and widowers are particularly susceptible to individuals who prey on the somewhat lonely and vulnerable. Without planning well for the potential issues around second marriages, a surviving spouse may be exposed to financial exploitation. At times, a parent's second spouse expects to have access to his or her new spouse's assets, and expects that the spouse's estate will pass to the new spouse. In some cases, the second spouse may even persuade his or her spouse to provide for the stepchildren, even though the stepchildren may be middle-aged adults that have little connection to their parent's new partner.

Later life marriages may have upsides for those who are single, but they have created much conflict and disharmony among families. Children will call our office seeking advice, perhaps an investigation for undue influence, when their parent's assets have shifted laterally, from the traditional estate plan, which distributed to the children, to a new spouse. Unfortunately, it is not always clear whether a parent intended to change her will and beneficiary designations, the title to their house, etc., or whether they were, in a sense, coerced to do so through a new spouse's manipulation. It is also very hard to prove undue influence after a parent's death.

From a single or widowed parent's perspective, the ideal way in which to improve the potentially devastating effects of second marriages is to plan ahead, anticipate that any of us may at any point enter into a second or even a third marriage during our long lives. During our first marriage, or after a divorce, we can set up our estate to anticipate the distribution of our estate if we marry again. Our estate plan should consider how we wish to benefit the children of our first marriage and second spouses. Because even a well-drafted Will cannot handle unique family developments, trusts should be seriously considered particularly if you are divorced or widowed and have children.

New IRS Regulations on Moving IRA Rollovers

Although it would appear to be a prudent to rely on the IRS's own published interpretation of its rules, one taxpayer recently learned that was not so. In this case, the taxpayer, a prominent tax attorney himself, rolled over more than one IRA in one tax year. In the past, the IRS has allowed for this. For example, if you had four accounts and rolled over IRA 1 into IRA 3, you would have to wait one year before you could roll over again from those two accounts. However, you could rollover IRA 2 into IRA 4 if you wished. Now, if you do so, you may face the penalty of declaring the entire value of your rolled over IRA as taxable income for that year, plus pay a 10% penalty if you are under age 59½. This taxpayer learned the hard way that relying on the IRS's own interpretation of its rules will not always protect you from penalties. Always check with your accountant or tax attorney to make sure that you receive the latest updates on Tax Court holdings and changes to the Code.

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Call us at 603.643.6072 or 802.457.9492

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